Exchange-Traded Funds (ETFs) have been in use since the 1990s. These funds are easy to trade in as they allow investors to keep track of assets without making any direct investments in said assets. Since their introduction, the ETF industry has boomed to grow to a valuation of USD 9 trillion.
Recently, the ETF market in the US has opened its doors to Bitcoin trading, making way for a new digital age in the stock world. Mimicking the real-time market price of Bitcoin, this form of fund allows potential investors to buy into its ETFs without directly trading in it. This system resolves a lot of concerns regarding cryptocurrency storage and security.
1. Current Bitcoin Valuation
This spike is a result of the Security and Exchange Commission’s (SEC) decision to approve the industry use of Bitcoin futures ETF. The verdict opens the market to digital investments by launching exchange-traded funds (ETFs) based on Bitcoin futures contracts.
ProShares, a Maryland-based firm, has become the first provider in the US to begin trading in the Bitcoin ETF. The fund currently trades under the ticker/stock symbol BITO on the New York Stock Exchange. Other providers like Valkyrie follow suit.
This new SEC regulation is massive news for the fast-growing cryptocurrency, as it opens up the digital sector to even more considerable mainstream approval. As a result, other virtual currencies like Ethereum (ETH), Shiba Inc, and Dogecoin have also seen a rise in valuation following the SEC’s approval of Bitcoin as a valid mode of investment..
2. SEC Involvement
In the past, the unstable nature of the cryptocurrency has been the SEC’s main argument against its industry-wide approval. The Commission has repeatedly been seeing Bitcoin’s abrupt price changes as evidence of its volatility. In the past, the SEC has prioritized investor security, believing these price fluctuations to be difficult for small investors to keep up with. So, this sudden approval of a Bitcoin futures ETF comes as an abrupt change from its usual attitude to digital investment.
But the SEC has been changing its tune on Bitcoin since late August. Gary Gensler’s appointment to the Chair of the SEC has dramatically influenced this change of dialogue.
Gensler has been vocal about regulating the USD 2.52 trillion cryptocurrency industry in the past and is the most significant figure to push for the approval of Bitcoin ETF.
3. Market Volatility with Bitcoin ETFs
Bitcoin is an unregulated virtual currency that is subject to intense market volatility. Since just last year, its market valuation has spiked a whopping 450% while witnessing drops of up to 50% between the highs. A valuation of USD 28,908 of June 2021 is a sharp fall of 42.3% from the previous monthly high recorded in May.
Such extreme price swings are common in the cryptocurrency world. Experts even warn investors to limit their cryptocurrency investments to under 5% to avoid risking the entirety of their portfolio to market fluctuations.
Countries like Switzerland, Canada, and Germany have approved crypto ETFs long before the SEC’s regulatory approval in the US.
Despite the apparent risk, Bitcoin’s valuation rose to an all-time high with the entry of the first-ever Bitcoin futures ETF. With Elon Musk’s declaration about still owning Bitcoin, Twitter’s response has been truly hilarious with tweets and memes pouring in in response.